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How the Affordable Care Act (ACA) works

The Affordable Care Act (ACA) was created to address a number of challenges that Americans faced over buying and keeping healthcare coverage.

Many Americans were denied coverage because of pre-existing conditions, and others with chronic healthcare conditions or serious illnesses or diseases ran out of benefits due to yearly or lifetime limits. In addition, millions of Americans were uninsured. They were at risk of financial problems and healthcare difficulties due to that lack of insurance.

The provisions of the ACA continue to evolve, and there have been many challenges that have chipped away at its original form, so there will likely continue to be changes as it is implemented during the next several years. The federal health insurance exchange can be accessed at healthcare.gov.

Health insurance standards

Under Obamacare, as the ACA is also known, health insurance policies must offer certain basic benefits. These include:

  • Outpatient care, including doctor's visits

  • Emergency room services

  • Hospitalization, including surgery

  • Maternity and newborn care

  • Lab services

  • Prescription drugs

  • Mental health and substance abuse services, including counseling

  • Rehabilitative services

  • Preventative and wellness services

  • Management of chronic diseases

  • Children's health services

Ronnie Cabrera, Dailem Delombard and Maylin Lezcano holding Lucas Cabrera sit with an insurance agent as they try to purchase health insurance under the Affordable Care Act. (Photo: Joe Raedle/Getty Images)
Ronnie Cabrera, Dailem Delombard and Maylin Lezcano holding Lucas Cabrera sit with an insurance agent as they try to purchase health insurance under the Affordable Care Act. (Photo: Joe Raedle/Getty Images)

Individual mandate

Beginning in 2014 — but ending at the end of 2018 under the recent tax law — under the individual mandate provision, most individuals needed to have insurance coverage or pay a penalty. That meant you and your children — and anyone else, such as a relative — whom you claim as a dependent, were required to have health insurance or pay a fine every year. The mandate was designed to ensure that the estimated 40 million Americans who didn't have health insurance got health insurance.

The penalty for not having insurance coverage began in 2014 and increased through 2016. The 2018 Tax Cuts and Jobs Act eliminated the individual mandate as of January 1, 2019.

Insurance subsidies

Many individuals and families qualify for subsidies that will lower the cost of their health insurance premiums. Those subsidies depend on your family income and size. The subsidies actually take the form of a tax credit, but they are applied to your premium costs immediately so you will pay the lower costs immediately.

Although most high-earning individuals and families will not be eligible for subsidies, low income and many middle-income families and individuals will be eligible. Subsidies for a family of four in 2019 are available for an income range of $25,750 to $103,000. The lower the income, the higher the subsidy; the income ranges will adjust slightly for inflation in future years.

NOTE: Legislation may change cost-sharing subsidies and coverage provisions.

Dive deeper: Paying for healthcare: Everything you need to know

This content was created in partnership with the Financial Fitness Group, a leading e-learning provider of FINRA compliant financial wellness solutions that help improve financial literacy.

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